Watching AUD/CAD

I suggested looking at EUR/AUD long positions on a weekly close above A$1.4706 on 27 November and this trade will be closely in play today.

Canadian Dollar
Source: Bloomberg

This follows this morning's Australian retail growth figures of 0.4% and the ECB meeting.

AUD/CAD looks like a good short, with the pair closing below the 26 November low and therefore printing a lower low. The pair would be targeting the December lows of near C$0.9400 from here and judging by the various oscillators AUD/CAD is not yet oversold. Fundamentally, the trade makes much sense.

The CAD is one of the more attractive currencies on the crosses given it is a proxy of the US economy and if you feel oil prices are bottoming then the CAD should benefit. In last night’s Bank of Canada central bank meeting, the comments on the economy were generally less dovish than anticipated and while the current neutral stance was warranted, the output looks to be lower and the amount of spare capacity falling. The Canadian economy is one to watch for 2015, as there is the prospect that the central bank becomes more hawkish next year.

Put that in comparison to the Reserve Bank of Australia (RBA) who could feasibly cut rates in 2015, with Goldman Sachs and Deutsche Bank now looking for 50 basis points of cuts.

AUD/CAD is one to watch, but I feel there are major downside risks for this cross.


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